The New York City Department of Consumer Affairs was recently asked to address an inquiry as to whether “debt buyers” that do not themselves engage in collection activities must be licensed by the Department. The Department responded that a purchaser or assignee of defaulted debt whose principal purpose is the collection of that debt, whether for itself or others, is a “debt collection agency” under New York City Administrative Code § 20-489 (a). Debt buyers that engage in debt collection activities must therefore be licensed by the Department in order to collect debts in New York City. New York City Administrative Code § 20-490.

A debt buyer that merely purchases or acquires defaulted debt but does not engage in collection activities itself does not require a license from the Department. Administrative Code § 20-489 defines a debt collection agency as “a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another.”

The Department of Consumer Affairs also reiterated the statement that attorneys and law firms are not exempt from licensing requirements but but that a “debt collection agency” does not include “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.” New York City Administrative Code § 20-489 (a) (5) (emphasis added). Thus, the Code’s exemption applies to those attorneys whose practice is limited to legal activities such as the filing and prosecution of lawsuits to reduce debts to judgments. The narrow exception does not, however, cover attorneys or law firms that regularly engage in activities traditionally associated with debt collection such as sending demand letters (dunning notices) or making collection telephone calls to consumers. Such attorneys and law firms are “debt collection agencies” under the New York City Administrative Code and must be licensed by the Department.

What does this mean to you, the consumer bankruptcy lawyer? In protecting your clients by sending out letters of representation to debt collectors (a practice that every consumer bankruptcy lawyer should follow) you should always remember that debt buyers may be considered debt collectors. So, too, are law firms that collect consumer debts. If a law firm send collection letters to your New York City client then that firm must be licensed by New York City as a debt collector; a failure to obtain a license may be yet another cause of action under the Fair Debt Collection Practices Act or state law.

If you would like a copy of the letters of representation that I send out to debt collectors, please e-mail me. And if you’d like to discuss how I can help you maximize the protection your clients get under the Bankruptcy Code or a variety of other federal and state laws, just let me know.